India’s debt fund managers are turning tactical as returns get harder

Axis Asset Management and Bandhan AMC have raised cash holdings. Some managers find state bonds attractive and others are backing shorter corporate debt.

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India’s top debt fund managers are turning cautious in what could be a tough year for returns, as the central bank nears the end of its interest-rate cut cycle while demand from key investors remains weak.

Axis Asset Management Co. and Bandhan AMC Ltd. have raised cash holdings for better investment opportunities. Some managers, including SBI Funds Management Ltd., find state bonds attractive due to their higher spreads. Others, like Aditya Birla Sun Life AMC Ltd., are backing shorter corporate debt.

This marks a shift in their strategy from last year when money managers largely preferred longer duration, as the Reserve Bank of India slashed rates by 125 basis points. However, yields remain elevated, and if they remain range-bound, capital gains may be limited.

“Given the overall macro and demand dynamics in the current phase of the rate cycle, it’s time to prioritize stability and accrual over a directional duration strategy,” said Rajeev Radhakrishnan, chief investment officer for fixed income at SBI Funds, the nation’s biggest asset manager. “Duration remains tactical in the current environment.”

This is what fund managers in India are preferring to buy in 2026. The information is based on interviews and their notes to clients:

Axis Asset Management (Devang Shah, head of fixed income)

• Creating some cash, reducing overall duration and building up AA credit assets
• Prefer two-year corporate bonds with yields above 7.5%-8% in portfolio
• Increasing state bond exposure because spreads are higher

Aditya Birla Sun Life AMC (Kaustubh Gupta, chief investment officer for fixed income and Sunaina daCunha, co-chief investment officer for debt)

• Like the 10-14 year segment of the government bond curve which is liquid and likely to benefit from any possible global index inclusion
• Remain circumspect about state bonds as supply is expected to remain elevated
• Strong corporate balance sheets and attractive credit spreads have boosted the appeal of corporate bonds, particularly in the tenors of one to three years

SBI Funds Management (Rajeev Radhakrishnan, chief investment officer – fixed income)

• State bonds, short-end bonds and money market instruments remain near-term investment opportunities
• State bonds spreads are likely to remain elevated providing investment opportunities at shorter-end of the curve
• A moderate duration stance, with core accrual built around high grade AAA bonds and selective exposure down the curve is warranted in portfolios

Bandhan AMC (Suyash Choudhary, chief investment officer – fixed income)

• Prefers 4-7 year segment on prolonged period of current low rates instead of longer debt due to weak appetite and significant duration supply
• Holding some cash/quasi-cash in portfolios in order to respond to any evolving situation
• Corporate bond curve is seeing pressure at the one-year point and curve beyond 3-4 years is flat owing to lack of supply; 2-4 year is more attractive

Mirae Asset Investment Managers (India) Pvt. (Basant Bafna, head of fixed income)

• Likes the 10-year sovereign bond as the RBI is largely doing OMOs in this segment and there will be a potential index inclusion
• Also likes 5-year government bonds and 1-3 year segment of the corporate debt curve because of the wide spreads
• Will watch to see how demand is evolving in state bonds in the current quarter

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